Mexico gets a debt downgrade–what country is next?
Another day, another country downgraded.
This time it’s Mexico following the path blazed by Greece. On December 15, Standard & Poor’s downgraded the country’s sovereign debt to BBB from BBB+. (Fitch Ratings had already downgraded the country on November 23.) That leaves Mexico’s rating still at investment grade, but the trend isn’t encouraging.
Especially when you look at why S&P downgraded the country’s debt rating. Read more
Don’t worry about a UK default, Moody’s says: Like the U.S., the country is “resilient”
Ah, now there’s a distinction worth making.
Moody’s, one of the big three debt rating companies, is continuing to rate the sovereign debt of deeply indebted countries such as the United Kingdom and the United States Aaa. That’s the same top credit rating Moody’s gives to countries such as Canada and Germany where debt loads are at lower levels and budgets are closer to balanced.
But, Moody’s is calling the former group “resilient” and the latter “resistant.”
No country in either group, Moody’s says, is “vulnerable.
The debt load for the United States will climb to 97.5% of GDP in 2010 from 87.4% this year, according to the Organization for Economic Development. For the United Kingdom the debt load is projected to climb to 89.3% from 75.3% in 2009.
“Resistant” countries, a category that also includes New Zealand and Switzerland, won’t see their debt rise to levels that threaten their Aaa status.
“Resilient” countries are Aaa countries where public finances are deteriorating, but which display, in Moody’s opinion, “an adequate reaction capacity to rise to the challenge and rebound.”
Not everyone buys this distinction. Read more
First Dubai–Now Greece and Portugal?
Things are getting serious in the market for sovereign debt. You know, the paper issued by countries with big deficits that need to borrow to stay in business.
Just before Thanksgiving Dubai World, a government-controlled conglomerate in Dubai, suspended debt payments. That raised doubts about the solvency of Dubai itself and of other member countries in the United Arab Emirates.
Those doubts led investors, lenders, and credit rating companies to take a closer look at other indebted countries that might face a tough time paying back what they owe.
And today that closer look claimed its first two victims. Standard & Poor’s Rating Service placed its A-rating for Greece on CreditWatch with negative implications. That’s a step that often leads to an actual downgrade on the country’s debt. S&P also downgraded its long-term outlook on the credit rating of Portugal to negative from stable. Read more
Making a list, checking it twice: What countries are in danger of default?
This is progress?
A year ago Wall Street analysts, credit rating companies such as Standard & Poor’s, and individual investors were putting together lists of banks in danger of failing.
Today, the lists are of deeply indebted countries in danger of defaulting on their debt.
The catalyst for today’s lists is the crisis in Dubai, where a government-controlled conglomerate, Dubai World, has declared a 6-month standstill on paying interest or principal on $26 billion in debt. Banks had assumed that this debt was somehow guaranteed by either the government of Dubai or by neighbor Abu Dhabi or by the central government of the United Arab Emirates. Yesterday, November 30, the government of Dubai told banks they were greatly mistaken and that Dubai would not stand behind what it now calls “private corporate” debt.
That hasn’t exactly ended fears that Dubai itself could default. Or that the contagion could spread to other countries. Egypt’s stock market took a beating on November 30, falling 8% on the day, for example.
All of which has led investors to try to figure out who might be next. Read more
